The Production Possibility Curve (PPC) shows the combinations of two goods an economy can produce with its limited resources. It illustrates the core economic problem of scarcity and choice. A PPC demonstrates that an economy must choose between different goods - it can produce more of one good only by reducing production of the other as resources are reallocated between uses. The opportunity cost of choosing one combination over another is the quantity of the forgone good.

1. The Production Possibility Curve (PPC)
A PPC shows all the combinations of two
‘goods’ which can be provided if all
resources are being used efficiently

2. The Production Possibility Curve (PPC)
Other health care services
HC
HCA
A
USE 1. Showing Choices
This PPC shows all the
combinations of Kidney Cancer
Treatments and other health
care services available in the
economy.
The NHS can provide KC kidney
care treatments and no other
services, HC other services and
no kidney treatment
or any of the combinations in
between such as A where HCA
health care services and KCA
kidney treatments are provided.
PPC
KCA
KC
Kidney Cancer Treatment

3. The Production Possibility Curve
(PPC)
USE 2. Opportunity costs can be illustrated.
Other health care services
HC
A
If the NHS reallocates its resources (moving along the
PPC from A to B) it can produce more kidney cancer
care but only at the expense of fewer other health
care services.
HC0
The opportunity cost of producing more KC
is the sacrifice of the other services. This can
be labelled on the diagram.
B
HC1
Opportunity cost of KC1 kidney
treatments rather than KC0 is the
loss of HC0-HC1 other services.
PPC
KC0
KC1
KC
Kidney Cancer Treatment

4. Capital Goods
Ym
A
Yo
IfIfitthe countryits at
If reallocates all
it devotes is
point A on a country
resources (moving round
Assume the capital
resources to PPF It
the PPF from A the it can
can produce to two
goods it could
can produce B)
produce more consumer
combination of Yo
produce a maximum
types of goods
goods but only at the Xo
capital goods and
of Ym. fewer capital
with its
expense ofresources
consumer goods
goods. The opportunity
– it devotes all its
If capital goods
cost of consumer extra
and producing an
resources to
X1-X0consumer goods is
consumer goods it
goods
Y0 – Y1 capital goods.
could produce a
maximum of Xm
B
Y1
Xo
X1 Xm
Consumer Goods

5. Productive efficiency
• The PPF is drawn on the assumption that all
resources are fully and efficiently employed
• Therefore:
– any point on the PPF shows efficient production
(Productive Efficiency)
– any point inside the PPF shows inefficient production or
unemployed resources
– any point outside the PPF is currently unobtainable

6. Point X is possible to achieve BUT
represents a point where some resources
are not being used efficiently
Capital Goods
Example: unemployed workers, factories
idle, production inefficiently organised
X
We are not satisfying as many of our wants as
possible
Consumer Goods

7. Can illustrate ECONOMIC GROWTH
Capital Goods
Y
The economy cannot produce at Y or anywhere
outside the PPC as the PPC shows the
Maximum Capacity of a country
An economy might be able to move its
PPF in the future if there is economic
growth, this means there is an increase in
production potential
Consumer Goods

8. Economic Growth increases the productive
potential of the economy:
An economy can grow if it increases the quantity
or quality of its factors of production.
e.g. A new technological development results in
an increase in productive potential and the
curve can move outwards.

9. Capital Goods
What else might cause the PPC to shift to the Right?
Remember that it is also possible for the curve to shrink
inwards.
What might cause this?
Make a note of your ideas…
Consumer Goods

10. Curved PPCs
When the PPC is
curved, you can see from
the diagram that in
attempting to gain equal
amounts of addition units
of manufacturing
output, the economy is
having to sacrifice
increasing amounts of
agricultural output.
Manufacturing Output
C
B
A
Why would this be the
case?
PPF
Agricultural Output

11. Curved PPCs
The Opportunity cost of producing more manufactured
goods is increasing as we give up increasing amounts
of agricultural products to achieve it.
The reason is that different factors of production have
different properties or skills and as we concentrate
more and more on the production of one thing we
have to start using resources that are less and less
suitable for it.